Probably old news for the majority of people here but it's a good resume of the present situation. I am holding my Qualcomm shares since 1996 (buy at $42) and I was one of the most confident person about the company. I am working for a wireless service provider in Canada which is using CDMA (IS-95) and I love to work with this technology but right now I am asking some question about my investment. Anyway, I am just thinking loudly... Good luck to everyone!
> nice article about Qualcomm below - nice for us that is.....
> Los Angeles Times
> Sunday, July 12, 1998JAMES FLANIGAN
> Torpedo That Hit Qualcomm Carried a Message
> By JAMES FLANIGAN
>
> If you think competition in advanced technology and international
> markets is a high-toned game played
> by Marquis of Queensbury rules, think again.
> Qualcomm Inc., the inventive San Diego-based
> telecommunications company, was sailing along toward a great destiny this
> year when it was almost kneecapped by international competitors and
> government regulators who outmaneuvered it.
> L.M. Ericsson() of Sweden devised a new standard for the next generation
> of cellular phones that is based on Qualcomm's technology, but not
> compatible with it. Then Ericsson got European communications regulators
> as well as Nokia() of Finland, Siemens of Germany and Nippon Telegraph &
> Telephone of Japan to agree to its standard. Next it is going to place the
> new standard before a United Nations rule-setting body on
> telecommunications.
> The upshot may be that Qualcomm, the 13-year-old company that has grown to
> more than $3 billion in revenue and 9,000 employees, will continue to be
> frozen out of European markets and severely damaged in its present and
> future business everywhere.
> Qualcomm has fought back. Chairman Irwin M. Jacobs, company co-founder and
> co-inventor of CDMA, or code division multiple access, technology for
> cellular phones, is threatening intellectual property lawsuits on a grand
> scale and trade action by the U.S. government.
> He may succeed in securing an opportunity for Qualcomm to compete with
> Ericsson and others in every market, including Europe, as mobile phones
> advance to data transmission and even Internet access.
> "His chances of success are better than 1 in 3 and improving, but they're
> not yet even money," says a telecommunications expert.
> What's at stake is a huge market. Mobile phone use worldwide, now
> approaching 200 million customers, is projected to reach 1 billion before
> 2005. Most predictions underestimate the tremendous prospects as wireless
> telephones provide basic communications services to developing countries.
> The prize is great. No wonder the competition is rough and tough. Here's
> what happened and what the story says to everybody in business.
> Europe has always been ahead of the United States in cellular phone usage.
> The need to make calls across its many national borders forced agreement
> more than a decade ago on a single mobile phone standard, called GSM, for
> global system for mobile.
> European phone equipment suppliers soon came to
> lead the global market. Ericsson, a longtime supplier to
> global telephone markets, with $21 billion in annual sales, gained
> one-third of the U.S. market-where it is linked with General Electric-and
> comparable shares in Asia and Latin America. Nokia also has been
> successful worldwide.
> In the U.S., AT&T had a technology similar to that of Ericsson. But in San
> Diego, Jacobs and Qualcomm co-founder Andrew Viterbi, entrepreneurs and
> former computer science professors, devised the CDMA system, which breaks
> phone calls into digital bits and codes each bit. The effect is to allow
> many calls simultaneously over the same line, thus greatly increasing the
> capacity of cellular phone systems.
> CDMA was a timely development, but Qualcomm's system was not welcomed.
> Competitors complained that the United States was confusing the market by
> allowing multiple standards. "The existence of different technical systems
> makes the U.S. market complicated," Bo Hedfors, head of Ericsson's U.S.
> operations, writes in the company's annual report.
> Some experts predicted as recently as 1996 that CDMA would not work.
> But it did work. CDMA phones, whether supplied by Qualcomm, Motorola() or
> others, gained acceptance in the U.S. and Asia. Qualcomm did not try to go
> it alone, but formed joint ventures with Sony of Japan for telephone
> manufacturing and Northern Telecom()
> of Canada for ground station
> equipment.
> Even European telecommunications companies began to concede they needed
> CDMA's capacity for their systems. And Ericsson began work on an advanced
> system for mobile phones called wideband- CDMA, based on the technology
> Qualcomm developed.
> Qualcomm's future seemed limitless, and its stock hit $72 a share at the
> end of last year.
> But in the early months of 1998, a different picture emerged. Ericsson's
> new system would be compatible with Europe's GSM but not with Qualcomm's
> CDMA. Furthermore, the European Telecommunications Standards Institute
> approved it as the single standard for all of Europe.
> And the International Telecommunications Union, a United Nations body that
> is examining advanced systems this year, was asked this month to certify
> the Ericsson standard for the world. An ITU decision is due this fall.
> Qualcomm was caught by surprise. With its business already hurt by the
> Asian financial crisis, the company's future was now threatened. The stock
> fell back to its present $56 a share.
> Jacobs flew to Europe last month to confer with telecommunications
> providers. "We want to be part of a single converged standard, or at least
> the new standard must be friendly to our technology," he says.
> Qualcomm is submitting its advanced CDMA standards, called CDMA-2000, to
> the United Nations. It plans to press its intellectual property rights to
> CDMA. And the U.S. government is being alerted to the anti-free-trade
> actions of European companies and regulators.
> Some telecom experts think Jacobs will prevail. "Ericsson tried a
> politically driven strategy, but I don't think it will work," says
> Bradford Peery, head of Brad Peery Inc., a Mill Valley, Calif., investment
> research firm specializing in telecommunications.
> But the final verdict is far from certain. Qualcomm will only succeed "if
> the U.S. government is unambiguous in its preference for open markets, if
> it declares that it doesn't like such tactics," says Peter Cowhey, a
> telecommunications expert at UC San Diego and a consultant to Qualcomm.
> The upshot most likely is that "there will be several standards in this
> new stage of mobile telephony, just as there are several standards today,"
> says Linda Barrabee, an analyst at Pyramid Research, a Cambridge, Mass.,
> telecommunications consulting firm.
> That will be OK with Qualcomm as long as markets everywhere are open to
> competition.
> What lessons does the story hold? One is don't underestimate competition.
> Qualcomm became too impressed with its own technology and was caught
> flat-footed by Ericsson. No company should be surprised on the
> fundamentals of its business.
> Two is that messy, competitive markets are better for entrepreneurial
> opportunity, for consumers and for general economies than the orderly
> standards that governments in Europe and elsewhere prefer. The battle
> between standards continues to push advances in mobile phones.
> Finally, competition for the huge prizes in advanced technology is not a
> game of patty-cake. But it's exciting.
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